Asset_Swap__Structure

Available

The following exchanges take place:

1) At swap's inception the asset swap buyer receives the underlying bond from the swap seller in exchange of cash equaling the bond's market price

This transaction is computationally equivalent to a zero upfront payment, since the net worth of the exchange vanishes.

2) During the swap's life, the coupons earned by the underlying bond are then exchanged for floating interest rate, i.e. the asset swap buyer pays the asset swap seller the coupons earned by the bond in exchange for ibor plus spread.

The floating coupons are calculated based on a scaled notional equalling

More details on the calculation of the ibor cash flows are available in Key Asset Swap::Index

3) At swap's maturity, the swap buyer pays par, i.e. cash equaling the bond's notional, from the asset swap seller in exchange of

Note the coupon exchange is meant to continue until the swap's maturity, even if the bond defaults, meaning that the asset swap buyer retains the credit risk of the bond.

The following exchanges take place:

1) At swap's inception the asset swap buyer receives the underlying bond from the swap seller in exchange of par, i.e. cash equaling the bond's notional.

This transaction is computationally equivalent to an upfront payment from the swap seller to the swap buyer of

2) During the swap's life, the coupons earned by the underlying bond are then exchanged for floating interest rate, i.e. the asset swap buyer pays the asset swap seller the coupons earned by the bond in exchange for ibor plus spread.

More details on the calculation of the ibor cash flows are available in Key Asset Swap::Index

Note the coupon exchange is meant to continue until the swap's maturity, even if the bond defaults, meaning that the asset swap buyer retains the credit risk of the bond.